Investment in Alberta not all it appears to be

Investment activity in Alberta looks promising, but a closer look at the numbers tells a different story.

An analysis by Altus Group of activity through the third quarter of 2018 revealed the provincial capital bore witness to $3.1 billion of investment, which is a 38% increase over the same quarter in 2017 and a whopping 86% spike over the first three quarters of 2016.

Breaking down those numbers, the industrial sector’s investment by the end of Q3 was $638.7 million, and retail investment reached $609.8m, however, the $180.9m invested in the third quarter alone decreased 3% from Q3 2017. The office market’s contributions to overall investment through the third quarter cannot be overstated: Of the $517.4m invested through the first three quarters, $456.4m was invested in the third quarter alone.

The apartment sector in Edmonton increased 35% through Q3 2017 compared to the same period last year.

In Calgary, there was $2.55b invested through Q3 2018, which is an 11% improvement over the same period in 2017, but the industrial sector was down 6% from last year, albeit possibly because of a supply dearth. Year-over-year, retail transactions have been up 26% through the first three quarters of 2018, however, the office market has declined 2%.

Ben Tatterton, Altus Group’s manager of data solutions, says that both cities appear to have buoyant investment markets, but that a lot of their weaknesses are being masked by a few disproportionate transactions.

“What we’re seeing is, overall and year-to-year, the rise in commercial investment activity is up and that’s paying to mind that we have a struggling asset class, that being office space,” said Tatterton. “In the office sector, there are several large transactions made by institutional investors, namely in Calgary being the IBM Corporate Park. There were big flashes of purchases by more of the larger players and they boosted the office total maybe higher than what they would be absent of those transactions. One to three large office deals are inflating the numbers.”

The weak office sector in Calgary, specifically, is largely tied to the province’s struggling oil and gas sector, which is expected to continue into 2019.

“Nationally, we don’t anticipate many economic shocks, but regionally we do,” said TransUnion’s Matt Fabian, director of research and industry analysis. “If oil prices continue to go down, we could be back closer to where we were in 2014 to 2015 when we had oil shocks in that region.”

However, the weakened state of the province’s economy, and by extension its office sector, might explain why investment in office space is relatively strong.

“I think it presents an opportunity,” said Tatterton. “We’re seeing some strategic buys by people who are looking away from the present and a few years into the future. They may realize it has a lot of upside in the future and that they can get it at a lower value than what they’d normally be paying in a boom time market.”